Nearly a third of U.S. deepwater production could be rendered uneconomic if Gulf of Mexico (GOM) permitting timelines are extended, according to a report released Tuesday by the American Petroleum Institute (API).

The report, which was prepared by Scotland-based energy consultant firm Wood Mackenzie, indicates that a slowdown in GOM permitting has already cost jobs and will reduce GOM oil and natural gas production and government revenue this year. As much as 680,000 boe/d of Gulf production could be at risk by 2019, and as much as $70 billion in investment and $18 billion in revenue to government could be at risk through 2022, according to the study.

"Permit delays directly impact the pace of development of U.S. energy resources. Even a small delay will be multiplied by the number of wells needed to explore, appraise and develop a field. These delays can be further compounded by the difficulty in securing rigs, other services...and subsequent shipyard commitments. While actual permit delays could be a matter of weeks for each well, delays could easily be compounded into months or years, particularly for large, capital-intensive projects," according to the report.

"The potential harm is alarming," said Kyle Isakower, API's vice president of Economic and Regulatory Policy. "We are talking about a transformation of the future relevance of deepwater Gulf development to U.S. domestic energy production, and a major threat to Gulf region jobs and to the nation's energy security. Based on the development impacts outlined by Wood Mackenzie, we believe as many as 125,000 jobs could be lost in 2015."

Although the Bureau of Energy Management, Regulation and Enforcement (BOEM) has not formally announced it, analysts believe that a Central GOM oil and natural gas lease sale scheduled for March 2011 will probably be shelved (see Daily GPI, Nov. 17, 2010).

The Obama administration's moratorium on deepwater drilling in the GOM, which was put in place following the blowout of BP plc's Macondo well and the sinking of the Deepwater Horizon rig, was lifted Oct. 12, but only for those operators that can show that they have complied with tougher new safety and drilling regulations (see Daily GPI, Oct. 13, 2010). BOEM Director Michael Bromwich has said BOEM has been has been working diligently to review applications for permits to drill in the deepwater GOM, but critics say the moratorium was replaced by a "permitorium," which effectively blocks most permits from being issued (see Daily GPI, Dec. 9, 2010).

Among those voicing concern about the pace of offshore GOM permit approvals have been Baker Hughes Inc. (see Daily GPI, Jan. 26), the U.S. Chamber of Commerce (see Daily GPI, Jan. 13) and Standard & Poor's Ratings Services, which recently lowered its outlook on Noble Corp., citing weakening credit metrics due to delays in permitting wells in the GOM (see Daily GPI, Dec, 29, 2010). A Deloitte LLP executive has said the industry is leery about returning to the GOM (see Daily GPI, Nov. 22, 2010).

BOEM recently notified 13 major and independent producers whose deepwater drilling activities were suspended by last year's deepwater drilling moratorium that they may be able to resume previously approved activities without the need to submit revised exploration and development plans for supplemental review under the National Environmental Policy Act (see Daily GPI, Jan. 4).

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